Tuesday, April 29, 2014

New Math: Breaking Down Industry Changes - Part 1

The announced industry changes have been a whirlwind of drama across every media.  I wanted to save this post for when ALL the blogs were released... but most of my peers have jumped the gun.  There is a lot to cover, so I will be breaking up my response as well.  Let's focus on the first two devblogs for now.

Other Blogs: as of Industry UI devblog release
Before I start working things through, let me highlight something for the non-industrialists.  There are two inescapable limits to production: Hours per week, and weight of freight.   

Everything You Knew Is Wrong

To analyze these changes, we really need to throw out all our classical assumptions around production.  Most of the shortcuts and tricks are going away, and we're going to be faced with a new paradigm.  Those who are barking most (lowsec capital producers) really are missing the entire scope of how the environment is changing.  And the demise of highsec industry is greatly exaggerated.  

The biggest cries are coming from lowsec capital producers.  In an effort to address the loudest dissenters, I want to walk through the changes from their perspective step for step.

I've highlighted the widely used flow chart most independent capital producers use.  The point in this flow is that it's extremely linear.  For the uninitiated, the primary bottleneck for capital production looks like freight.  For the capital producing professional, T1 compression moves that bottleneck to BPO count.  Compression makes the freight step nearly trivial, compressing a supercarrier into two JF trips.

The announced reprocessing changes break the compression link in this chain.  Without compression, freight becomes an enormous bottleneck.  With a large library of BPOs, builders are scrambling to figure out how they will meet the same throughput.  The short answer for the vast majority of these producers is: they won't be able to produce the same number of capitals they are used to... without some serious logistical horsepower.

Then The Fire Nation Attacked

Without compression, large-scale/solo capital producers are left in a lurch. This really changes up the build cycle for these producers.

full res: imgur

To keep heavy capital production running, ore compression is the only reasonable tool left for the builder.  This will completely change up the cost scheme for production.  Rather than basing final costs off raw minerals, like they are today, savvy capital builders will be required to balance compression with added costs of compressed ore.  Very simply: compressed ore will not cost the same as the sum of its parts, if it has a favorable compression ratio.

Next, we get to why low sec capital producers are so annoyed.  With reprocessing changes, it will take different amounts of those compressed ores to get the raw materials required.  Somewhere around 5% more ore will be required to build a capital, using compression, in lowsec.  Also, low sec producers will be forced to use POS to get the best refining rates, which will add another cost to the chain.

Lastly, there are the changes to production costs.  With the removal of slots, station-builders will be forced to pay up to 14% surcharge on their jobs.  CCP has hinted that outpost owners will not be able to zero this cost out, meaning those lowsec producers have an opportunity to make back that 5% loss they had to spend on their POS.  There will still be a considerably heavy freight step to get capital parts out of a POS, which could prove to either be too much effort to justify the ISK/hr, or too much risk to even start the process.

It's also worth noting that with copying becoming far more viable, that these low sec factory POS start to look half way worth it.  Even if that adds another step to the chain, most capital producers will have spare research time available on their toons, and copy mules are reasonably cheap.

It's Different, I Hate It

Before writing your farewell post and giving away all your assets, let's think through the whole chain.  Though null gets an obvious boost from this change, putting teams of miners to work in rental corps across the frontier, it's not simply a nerf-lowsec/boost-nullsec change.  There are a lot of steps being added to the chain.  The more steps in a process, the more opportunities for added value:
  • Miners will be compressing their materials rather than refining them
    • This incurs POS/fuel costs to the raw minerals
  • Compressed freight is worthless until it gets in the hands of a producer
    • Refining low-ends for shipping will be discouraged in null
    • High-end supply to hubs should remain mostly flat
    • Trit/Pyre will come mostly from inefficient high sec
  • Demand for efficient compressed ores (ABC) will drive added value for ores
  • POS required for most miners and producers, for best reprocessing yield
  • Production line fees could kill profits.  POS required for mitigating cost, at additional risk
The point: there are a lot more permutations in production than before.  As such, there should be a much wider margin on complicated products for the mid term.  I think valuations will settle near the production costs of lowsec, meaning anyone still in the game will need to be very diligent to keep their profits.  But, also note that now with the difficulty curve increased, many capital builders have given up the market.  This is a great opportunity to get your hands on researched BPOs, and if you have a diligent plan, could still stand to profit.  May require some help though.

Author's Note: This post was written before the the Research changes were officially announced.  More to come soon(tm)


Unknown said...

Even though the theme of this is buff null sec / kill high sec and low sec, what is more galling is the fact that the dev's today had no clue what to do with POS's, and stated that. There are massive holes in what the game mechanics will be.

But they demonstrate the total incompetence and also hatred these devs have for high sec, and their sycophantic love of null sec cartels.

Unknown said...

I admit, as a High Sec solo Indy dude, I'm pretty pissy about the "fixes" that CCP has in mind.
but I didn't think about the other manufactures bailing out, so thanx for that, will start scouring contracts when I log on.

I have time on my accounts to see what Fanfest brings, but like the others, I'm strongly considering taking my 80$ a months elsewhere

Unknown said...

it's really hard to resist the "it's different therefore bad" knee jerk. I think there is a lot of possibility here... but I am still on the fence on all the specifics.

There are a lot of reasonably obvious (in my opinion) corners they have not addressed... After fanfest, the changes should be live on the test server, and we can pass better judgement then. With so much changing so drastically, it's incredibly hard to internalize everything.

I'll have at least one (probably two) more posts on the devblogs pre-patch. Personally, I'm kinda banking that a bunch of vets will rage-quit and the market will be easy pickings for those with a little more tenacity.

Playos said...

As a null sec indy player... I'm actually in the same boat. If it makes you feel any better, we're getting hosed worse.

- That refining advantage? Doesn't really exist, very few minmatar stations have more than a Lvl 1 upgrade, so it's worse than a POS, plus requires skills and implants. It's a 14-20b upgrade to get it to Lvl 2 and another 20b for Lvl 3.
- We're getting NPC costs we didn't have before.
- Jump fuel consumption is being increased 50%, so building anything in quantity just got a lot more expensive.

NoizyGamer said...

I didn't want to jump the gun, but when 2 CSM members publish blog posts, I almost didn't have a choice. Besides, I wasn't too happy when I wrote my post.

Louis Robichaud said...

Three additional factors to consider:

1: Jump fuel requirement has just been increased by 50%. This increases low/null shipping costs, but does not affect intra high-sec shipping.

2: The "up to 14%" cost is *system wide*, not installation specific. This means that being in a POS won't help you much if the area is busy. There is also a tragedy of the commons - ish effect - a producer's aggressive manufacturing will penalize him a bit but also everyone else in the system.

3: This is a hidden buff to lowsec - their systems are likely to be very quiet, thus low system costs.

Louis Robichaud said...

You were right to write that blog entry, those two posts were very disappointing.

Stabs said...

So for low sec cap builders:
1) increased fuel costs to import compressed ore (the 50% mentioned by Fozzie)
2) manufacturing costs change from negligible to some number from 0-14%, but probably on the low end of that. This can be further mitigated by FW bonuses.

That part's not very significant.

What seems to be significant is the refining changes. The best place to refine will be in a fully upgraded nullsec station. This means that for a lowsec cap producer he will be melting compressed ore down at a worse ratio than his nullsec competitor. It's that number which is breaking low sec cap production viability.

Here's the new formula Reprocessing yield: Station Equipment x (1 + Refining skill x 0.03) x (1 + Refining Efficiency skill x 0.02) x (1 + Ore Processing skill x 0.02) )

Best Empire station has 50% from station equipment. Best null station has 60% from station equipment.

What's more it could be possible to mine in the system in nullsec that you build caps in - you wouldn't need to compress or move your ore.

Unknown said...

The difference in refining yields will be roughly 5%. Also, with the recently announced (and brain-meltingly complicated) fee schedule, lowsec stands to have reduced fees compared to null.

The permutations of possibility make pinning down the "best" practice a little difficult with half the info, and still big gaps in important places.

Quixilva said...

Actually the difference in maximum refining yields is the difference between the 60% base available in a fully upgraded minmatar station and 54% which is the best you can get outside of sov null, which is about a 11% difference.

Unknown said...

Base yield is that different. But after skills (which are supposed to apply at POS) the difference is roughly 5% between Minmatar station and LS POS

Quixilva said...

The skills just apply a series of multipliers to the base rate. So with equal skills you're going to get 11% more minerals in the best null-sec stations than you will get at a pos everywhere else.

Unknown said...

11% difference at the start doesn't mean that it will remain 11% after all the modifiers are attached.

Worked through the math with @gibaron: here

Quixilva said...

That example supports my math, if you take the final yield for the best upgraded Minmatar and divide it by the figure for the improved array at a pos, you get 83.49/75.14 or 1.11, so you'll get 11% more minerals from sov-null than you can get elsewhere. Coupled with the up to 5% boost for manufacturing at an amarr station it means you can make items which just use minerals a whole lot cheaper than anywhere else (for 85.5% of the cost). Sure the setup costs are massive, but even low isk/volume stuff like t1 ships may be cheaper to make in null for sale in hisec.

Hildebrand en Lotte said...

What I always miss when people talk about changing a Supply Chain, is friction costs. As logistics student, I have learned to always count on budget to accommodate the change. In RL that would amount to;

- Learning costs / Training costs
- IT change costs
- Lot of Management and Meeting costs
- Travel / Transport costs - people and products (direct and indirect)
- Expert costs (you have to start-up the new process, often its cheaper to bring in some external experts to kick-start your plan, then just have your old crew manage the change, the googles of this time do this by simply buying new companies)

In eve this will have a diff workout.

- Skillplans have to adjust, people in EVE in the supply chain of EVE will have to shift skill-plans to match the new changes, this time costs time and money. People have to sink PLEX into dual char training and have to free up ISK to do this, while stuff is training up, people wont be as efficient as before. This will increase prices of items at the start of the new supply chain changes, since turnaround times in supply chains will increase.
- IT changes (including some management), the sub-optimal market dependencies of EVE around found in 3th party dependencies. While new enterprises can setup from the start, old systems will need an overhaul. Corp roles, Intel channels, inter alliance dependencies, all will have to change to accommodate the new system, this will take time and will drive the price up due to longer turnaround times, which will lead to shortage on the market.
- Travel / transport costs, in EVE its related to the time to market, how much time will a new EVE supply chain need compared to the old one to find a new setup that works. People have to re-position alts, make new corp structures, etc. The time to setup all this is the most underestimated part of supply chains.* The time to market cycle as mentioned above, will be really impacted by this timer. Old people leaving the field, and people entering will shift the complete supply chain, and within the chain trust has to be rebuild before everything will be smooth again.
- Expert costs are not really around in EVE. At fanfest I talked to Dr Enyo about eve having no decay of any kind in markets and how that influences market statistics. When applying RL market strategies as done be VV, that factor has to be taken out. Enyo agreed with me that having no decay of any kind is something that was considered a problem by CCP too, but that they had not found any satisfying solutions yet. Some interesting things passed the beer table though. For now I think most costs will be in finding new supply partner systems. Since the EVE capital (ISK) trust market is non-functioning at all (long live MD), this will have to be covered from your own (alliance's) ISK. The sink of this investment will be underestimated by a lot of EVE players. With less ISK available in your supply chain, I expect this also to effect the total time to market of that supply chain.


Its early for me, I hope people can see this from a RL perspective. Feel free to ask question to clear this up ;).


* In my RL experience, a shoes supplier once moved its sourcing to low cost country, the setup time for the new line was about 6 months, the contractor lost about 60% of market penetration, pure due to management thinking it would be setup in weeks, our logistics department was not considered a stakeholder up until the moment that sales started a new supply cycle for a new season and informed us of the new source. They were really surprised we had no contacts in Africa, we had no default custom setups, let alone an automated process to shoot in papers to local authorities, it was really fun, not!, people were fired all over the company... ;).

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